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Sunk Cost Fallacy
Sunk Cost Fallacy
Sunk Cost Fallacy
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Overview

This model is a reminder to cut your losses and focus on future opportunities rather than getting pulled down by past decisions.

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Qui enim existimabit posse se miserum esse beatus non erit. Compensabatur, inquit, cum summis doloribus laetitia. Sin laboramus, quis est, qui alienae modum statuat industriae? Inde igitur, inquit, ordiendum est. Quod idem cum vestri faciant, non satis magnam tribuunt inventoribus gratiam. Duo Reges: constructio interrete.

Atqui haec patefactio quasi rerum opertarum, cum quid quidque sit aperitur, definitio est. Ista ipsa, quae tu breviter: regem, dictatorem, divitem solum esse sapientem, a te quidem apte ac rotunde; Si id dicis, vicimus. Consequens enim est et post oritur, ut dixi. Dolor ergo, id est summum malum, metuetur semper, etiamsi non aderit; Proclivi currit oratio. Amicitiam autem adhibendam esse censent, quia sit ex eo genere, quae prosunt. Quamvis enim depravatae non sint, pravae tamen esse possunt.

Mihi enim erit isdem istis fortasse iam utendum. Itaque e contrario moderati aequabilesque habitus, affectiones ususque corporis apti esse ad naturam videntur. Ut non sine causa ex iis memoriae ducta sit disciplina. At iam decimum annum in spelunca iacet. Facile est hoc cernere in primis puerorum aetatulis. Dat enim intervalla et relaxat. Hoc dixerit potius Ennius: Nimium boni est, cui nihil est mali. Itaque hic ipse iam pridem est reiectus; Possumusne ergo in vita summum bonum dicere, cum id ne in cena quidem posse videamur?

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Actionable Takeaways
  • Ask, ‘does this cost have an impact on what will happen in the future?’

Identify Sunk Co ...

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Quae est igitur causa istarum angustiarum? Non minor, inquit, voluptas percipitur ex vilissimis rebus quam ex pretiosissimis. Haec bene dicuntur, nec ego repugno, sed inter sese ipsa pugnant. Sit enim idem caecus, debilis. Duo enim genera quae erant, fecit tria. Duo Reges: constructio interrete. Quis enim confidit semper sibi illud stabile et firmum permansurum, quod fragile et caducum sit? Ita ne hoc quidem modo paria peccata sunt.

Quarum ambarum rerum cum medicinam pollicetur, luxuriae licentiam pollicetur. Haec para/doca illi, nos admirabilia dicamus. De ingenio eius in his disputationibus, non de moribus quaeritur. Conclusum est enim contra Cyrenaicos satis acute, nihil ad Epicurum. Tuo vero id quidem, inquam, arbitratu. Illa sunt similia: hebes acies est cuipiam oculorum, corpore alius senescit; Sed ad illum redeo. Quam ob rem tandem, inquit, non satisfacit?

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Limitations

Identifying a Sunk Cost can be difficult when there is no precise way of comparing a loss to a gain. The desire to not appear wasteful also can limit your ability to base a decision on relevant costs exclusively, especially when you feel personally responsible for the investments representing sunk costs.

In Practice

The Concorde Fallacy.

The Concorde Fallacy is an alternative name for the sunk cost fallacy, coming from the way the British and French governments continued to co-fund the development of the expensive Concorde supersonic aeroplane even after it became financially untenable. Their previous investment, financially and politically, was thought to determine the ongoing funding. 

Eat too much?

A common example of the sunk cost fallacy is when someone buys a large meal, then overeats to ensure ‘they get their money worth’. 

 

Build your latticework
This model will help you to:

The sunk cost fallacy is an unconscious bias that arises from accounting and financial domains. It is an important consideration in decision making.

Use the following examples of connected and complementary models to weave the sunk cost fallacy into your broader latticework of mental models. Alternatively, discover your own connections by exploring the category list above. 

Connected models: 

  • Cost-benefit analysis: to consider actual pros and cons of a choice
  • Opportunity cost: to consider the potential loss of a future facing decision.

Complementary models: 

  • First principle thinking: in breaking down a situation to its basics.
  • Inversion: considering the opposite, e.g. ‘how can we continue to make that loss again?’
  • The Lindy effect: to challenge sunk costs and seeing past longevity as a potential positive.
  • Availability heuristic: being overly impacted by immediate situations and losses.
  • Lock-in effect: is there greater friction to breaking from the status quo.
Origins & Resources

Read N. Gregory Mankiw’s Principles of economics for information on various economic theories that involve the concept of sunk costs.

This brief article references some of the relevant studies arising from Behaviorual Economics and the Sunk Cost fallacy. Check this video resource for a quick overview of the sunk cost concept and how it applies to the Concorde supersonic plane case.

My Notes

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